COMMISSIONER OF INCOME TAX Vs. HIMACHAL PRADESH MINERAL AND INDUSTRIAL DEVELOPMENT CORPORATION
LAWS(HPH)-1997-7-7
HIGH COURT OF HIMACHAL PRADESH
Decided on July 08,1997

COMMISSIONER OF INCOME-TAX Appellant
VERSUS
HIMACHAL PRADESH MINERAL AND INDUSTRIAL DEVELOPMENT CORPORATION Respondents




JUDGEMENT

M. Srinivasan, C.J. - (1.)THE Revenue has filed these applications for directing the Tribunal to refer the following questions :
"Whether, on the fads and in the circumstances of the ease, the Income-tax Appellate Tribunal was right in law in directing the Assessing Officer to allow depreciation and investment allowance on the cost of the two transformers installed at Nalagarh and Nurpur, the ownership of which vests with the H, P. State Electricity Board ?"

This question is arising in all these cases. In one of the cases, one other question arises as to whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in upholding the order of the learned Commissioner of Income-tax (Appeals) in allowing the deduction under Section 80J to the assessee on its six units on the capital employed without reducing the same by the amount of loans raised from the head office.

(2.)WE take the second question for consideration at first. This question arises in ITA No. 3 of 1997. The Tribunal in its order has discussed the facts at length in paragraphs 21 to 25. At the end of the discussion, the Tribunal has found as a fact that the Departmental representative has not been able to show any nexus between the loans raised by the head office and the loans utilised by the various units and that in the absence of such nexus, the loans of the head office on a pro rata basis cannot be reduced from the assets of the units to arrive at the capital employed by such units. On that footing, the Tribunal has rejected the contention of the Revenue and upheld the order of the Commissioner of Income-tax. The question depends upon the finding of fact arrived at by the Tribunal and thus no question of law arises. Hence, the application by the Revenue for referring the second question cannot be accepted.
Turning to the first question, the relevant facts as available from the records are that the two transformers were the property of the H. P. State Electricity Board. The assessee paid the entire cost of the said two transformers to the H. P. State Electricity Board. According to the assessee, on account of a technical hitch, the title has not been transferred in favour of the assessee. But the assessee has been using the transformers having installed the same at Nalagarh and Nurpur. The contention of the assessee was that the property in the machinery had already passed to the assessee even though the title has not been actually transferred to the assessee by the HPSEB.

The Income-tax Officer as well as the Commissioner of Income-tax refused to accept the contention of the assessee and disallowed the depreciation or investment allowance as claimed by the assessee. The Tribunal held that the assessee was entitled to claim the depreciation and investment allowance. The reasoning of the Tribunal is found in paragraph 5 of its order, which reads as follows ;

"We have carefully considered the rival submissions as also the facts on record, The transformers had been given to the assessee and installed by it at Nalagarh and Nurpur. The entire cost of the transformers had been paid by the assessee to the H. P. State Electricity Board. Due to certain reasons the ownership was not transferred. As the transformers consisted of movable property which had been handed over to the assesses by recovering the entire cost, in our opinion, the transfer of goods had taken place and the assessee, for all intents and purposes, was the owner of the said transformers. Respectfully following the ratio of the Calcutta" High Court decision in the case of Steelerete P. Ltd. (supra), we direct the Assessing Officer to allow depreciation and investment allowance on the cost of two transformers if all other legal conditions stand fulfilled."

In the course of discussion, the Tribunal has made a reference to the judgment of the Calcutta High Court in CIT v. Steelerete (P.) Ltd. (1983] 142 ITR 45. In the case before the Calcutta High Court, the asses-see was engaged in construction work and secured a contract from the . Vizag. Port Authority for Rs. 3 crores for construction of four berths at the port. In order to carry out the work, the assessee was allowed to import special types of machinery. The machinery was actually imported by the Government of India and the payments were also made by the Government of India. The assessee was allowed to use the machinery on the condition that the Government of India would recover the total cost of machinery from the monthly bills submitted by the assessee and till the completion of the contract, the Government would have permanent lien on the machinery. The machinery was to be transferred to the assessee on the completion of the contract. The Income-tax Officer disallowed the claim of the assessee for deduction of depreciation on the ground that the assessee was not the legal owner of the machinery. The Appellate Assistant Commissioner and the Tribunal held that the assessee was the owner of the machinery and was entitled to the deduction. On a refrence, the Calcutta High Court held that the expression "owner" had different meanings in different contexts and the owner need not always have the complete user or right of full ownership at all times. On the facts of that case, the Calcutta High Court held that the machinery was being used by the assessee and it was shown as its assets in its balance-sheet and, therefore, the assessee was entitled to get 'depreciation deducted under Section 32 of the Act. The Calcutta High Court has made a reference to the decision of the Supreme Court in R. B. Jodha Mat Kuthiala v. CIT [1971] 82 ITR 570 -and also the decision of the Patna High Court in Addl CIT v. Lawlys 'Enterprises P. Ltd. [1975] 100 ITR 369, where also the question was considered under section 32 of the Income-tax Act and it was held that the lessee of the building could be treated as owner for the purpose of the said section.

(3.)THE Supreme Court had to consider the meaning of the word "owner" with reference to section 9 of the Indian Income-tax Act, 1922, in R. B. Jodha Mal Kwthiala's case 1971] 82 ITR 570. THE assessee therein was a registered firm deriving income from interest on securities, property, business and other sources. In 1946, the assessee purchased a hotel in Lahore for a sum of Rs. 46 lakhs, For that purpose, it raised a loan of Rs. 30 lakhs from Bharat Bank Ltd., Lahore, and a loan of Rs. 18 lakhs from the Raja of Jubbal. THE loan was partly repaid and as regards the loan taken from the Raja, the assessee came to an agreement with him under which the Raja accepted a half share in the said property in lieu of the loan advanced and also one-third of the outstanding liability of the bank. THE arrangement came into effect in 1951. After the creation of Pakistan, Lahore became a part of Pakistan and the hotel was declared an evacuee property and consequently vested in the custodian in Pakistan. THE question arose whether for the purpose of Section 9 of the Income-tax Act, the interest paid by the assessee on the loan was deductible allowance as he was not the owner of the property since it had vested in the custodian. THE High Court held that the assessee could not be considered to be the owner of the property and, therefore, he was not entitled to get the benefit of deduction. THE Supreme Court upheld the said decision of the High Court, but while considering the meaning of "owner", the Supreme Court observed as follows (page 575) :
'"THE question is who is the 'owner' referred to in this section ? Is it the person in whom the property vests or is it he who is entitled to some beneficial interest in the property ? It must be remembered that Section 9 brings to tax the income from property and not the interest of a person in the property. A property cannot be owned by two persons, each one having independent and exclusive right over it. Hence, for the purpose of Section 9, the owner must be that person who can exercise the rights of the owner, not on behalf of the owner but in his own right . . .

For determining the person liable to pay tax, the test laid down by the court was to find out the person entitled to that income. An attempt was made by Mr. Mahajan to distinguish this case on the ground that under the corresponding English statute the liability to tax in respect of income from property is not laid on the owner of the property . . .

But the real question is, can that right be considered as ownership within the meaning of Section 9 of the Act. As mentioned earlier the section seeks to bring to tax income of the property in the hands of the owner. Hence, the focus of that section is on the receipt of the income. THE word 'owner' has different meanings in different contexts. Under certain circumstances a lessee may be considered as the owner of the property leased to him. In Stroud's Judicial Dictionary, 3rd edition, various meanings of the word 'owner' are given. It is not necessary for our present purpose to examine what the word 'owner' means in different contexts. THE meaning that we give to the word 'owner' in Section 9 must not be such as to make that provision capable of being made an instrument of oppression. It must be in consonance with the principles underlying the Act."

Thus, the test laid down by the Supreme Court in that case is whether the person is entitled to claim the income arising out of the property. THE court also pointed out that the Act should be interpreted in consonance with the principles underlying therein and it should not be made an instrument of oppression. If those tests are applied in the present case, there can be no doubt whatever that the assessee is getting the benefit of the entire income arising out of the user of the transformers and when he is claiming depreciation on the value of the machinery, which he has shown in the balance-sheet as part of his assets, the Section cannot be used an instrument of oppression, Such a claim should not be denied.

Learned counsel for the assessee places reliance on the judgment of the Allahabad High Court in Addl CIT v. U. P. State Agro Industrial Corporation Ltd. [1981] 127 ITR 97. The assessee was a body registered under the Companies Act. The capital of the assessee was subscribed equally by the Government of India and the Government of U. P. The State Government by its order dated April 27, 1968, transferred possession of its agricultural workshop to the company in consideration of certain amount. The company claimed depreciation under Section 32 in respect of the buildings taken over by it from the State Government. The Income-tax Officer disallowed the claim on the ground that the properties in respect of which the claim had been made were immovable properties and since no sale deed had been executed by the State Government, the corporation did not become its owner. The Appellate Assistant Commissioner affirmed the order of the Income-tax Officer. On further appeal, the Tribunal held that for claiming depreciation under Section 32, it was necessary for the assessee to fulfil the following two conditions :

1. that the assets in respect of which depreciation was claimed by the assessee must be owned by it ; and

2. that those assets must have been used by the assessee for the purpose of its business.

The Tribunal found that the property in respect of which depreciation was claimed by the assessee was used by the assessee for its business purposes and with regard to the first condition the State of U. P. ceased to be the owner of the properties after it passed the order on April 24, 1968, and as it could not exercise any rights in respect thereof and that in view of the capital structure of the corporation, constitution of its board of directors and the fact that the corporation was in possession of the properties, it could, for the purposes of Section 32, be held that the properties were owned by the corporation and it is entitled to claim depreciation with respect to them.



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